The Motor Vehicle Open Recall Notice and Fair Compensation Act just passed in New Jersey legislature, and while it looks good on paper, it is bad news for consumers. The legislation will end up raising costs on automobiles. Other states should think twice before introducing similar provisions.
The bill allows for Original Equipment Manufacturers (OEMs) to be overcharged, in some cases at a rate of 1.5 times, for warranty repairs. Auto shops calculate repair times based on estimates of the average amount of time it will take to complete a repair. The bill proposes inflated rates, above current estimates established by OEMs. But these rates are not supported by any data, nor is there any empirical evidence to indicate that lower measured times from OEMs are either inaccurate or unreasonable. Essentially, the bill ensures that labor costs for vehicle repairs will increase.
Manufacturers will pass these expenses on to car buyers through higher prices. Essentially, based on no supporting data, this provision allows a transfer of income from consumers to car dealerships. Such actions ultimately hurt consumers.
A study from a few years ago found that American consumers already collectively pay almost $48 billion more per year on new automobile purchases due to similar state laws already on the books. This particular bill would merely increase sticker prices even more. Referenced within this report is a similar finding from the Federal Trade Commission, which discovered that these dealership protectionist bills have raised new car prices by approximately 7.8 percent.
At a time when consumers are recovering from heavy inflation over the last few years, additional price increases are detrimental, especially for lower-class households.
Data indicates that prices on both used and new vehicles have risen dramatically over the last few years. The average price of a new car has increased 34 percent in just five years. Used cars are up nearly five percent from a year ago, with some outlets seeing price increases of several hundred dollars in just one month alone.
Experts predict car prices to increase even further as President Trump’s tariffs take effect. Some expect approximately 80 percent of the cost to be passed on to consumers, which could average close to $2,000 per vehicle.
The average household cannot afford even more price increases, especially because of legislation that merely transfers wealth from middle class car buyers to wealthy car dealerships. Purchasing a vehicle will become more out of reach for low-income families.
The government should not be getting involved in the business relationship between OEMs and dealers. This intervention does nothing to reduce costs or benefit consumers, and in fact does the opposite. It will increase prices and make it much harder for them to purchase a vehicle they might need to go to work, transport children, and carry out basic household functions.
Instead of creating more red tape, governments should be looking for ways to roll back regulations, ease burdens on families and businesses, and reduce costs.
Legislators need to protect consumers by not inflicting price increases. This bill is bad news and will only lead to more financial strain for New Jersey families. Other state lawmakers should refrain from following New Jersey’s example by staying away from such harmful bills.
Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @ConsumerPal.